Determinants of the Shadow Economy in Türkiye: The Role of Innovation, Government Quality, Government Size, and Inflation
Abstract
Global economies are negatively impacted by the shadow economy, and hence, many governments have been increasingly trying to combat it in recent years. Considering the crucial importance of limiting the size of the shadow economy and the factors influencing it, the primary goal of this study is to investigate how innovation, government size, government quality, and inflation affect the shadow economy in Türkiye. To achieve the study’s objectives, we employ Fourier Shin cointegration and Fourier-based DOLS tests, covering the period from 1990 to 2020. The findings of the study indicate that the effects of innovation, government size, and government quality on the shadow economy are negative and statistically significant. However, inflation affects the shadow economy positively and significantly. Therefore, policymakers should allocate greater resources within the government size to combat the shadow economy in Türkiye, while simultaneously increasing policies that promote innovation, improving government quality, and maintaining macroeconomic stability by controlling inflation more effectively.
Keywords
References
- Abu Alfoul, M.N., Khatatbeh, I.N. and Jamaani, F. (2022). What determines the shadow economy? An extreme bounds analysis. Sustainability, 14(10), 5761. https://doi.org/10.3390/su14105761
- Abu-Lila, Z.M., Ajlouni, S. and Ghazo, A. (2021). Nonlinearity between financial development and the shadow economy: Evidence from Jordan. Accounting, 2021, 1049–1054. https://doi.org/10.5267/j.ac.2021.3.004
- Ahmad, W. and Hussain, B. (2023). Fiscal policy effects on shadow economy: Empirical evidence from developing countries. Asian Journal of Applied Economics, 30(2), 1–22. Retrieved from https://ageconsearch.umn.edu/
- Akdogan, T. and Yavuz, H. (2022). Dijitalleşme perspektifinden vergi uyumu. Ankara: İksad Publishing House.
- Alelshaikh, H.A. and Al Mubarak, M. (2024). Digital technologies: Uses and challenges in government. In A. Hamdan and A. Harraf (Eds.), Business development via ai and digitalization: Volume 1 (pp. 163–179). Switzerland: Springer Nature. https://doi.org/10.1007/978-3-031-62102-4_14
- Alm, J. and Embaye, A. (2013). Using dynamic panel methods to estimate shadow economies around the world, 1984–2006. Public Finance Review, 41(5), 510–543. https://doi.org/10.1177/1091142113482353
- Alsaad, A., Alkhawaldeh, A., Elrehail, H. and Almomani, R. (2024). Linking e-government development and quality of governance to trust in government: Evidence from OECD member countries. Transforming Government: People, Process and Policy, 18(4), 575–593. https://doi.org/10.1108/TG-03-2024-0060
- Ameer, W., Sohag, K., Zhan, Q., Shah, S.H. and Yongjia, Z. (2025). Do financial development and institutional quality impede or stimulate the shadow economy? A comparative analysis of developed and developing countries. Humanities and Social Sciences Communications, 12(1), 17. https://doi.org/10.1057/s41599-024-04347-w
Details
Primary Language
English
Subjects
Time-Series Analysis, Inflation, Informal Economy
Journal Section
Research Article
Authors
Mehmet Ela
*
0000-0001-7341-6312
Türkiye
Publication Date
March 31, 2026
Submission Date
October 20, 2025
Acceptance Date
March 13, 2026
Published in Issue
Year 2026 Volume: 11 Number: 1